Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and related notes included elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. As used in this Form 10-Q, unless otherwise indicated or the context otherwise requires, all references to the "Company", "MRC Global", "we", "our" or "us" refer to MRC Global Inc. and its consolidated subsidiaries.

Cautionary Note Regarding Forward-Looking Statements

Management's Discussion and Analysis of Financial Condition and Results of Operations (as well as other sections of this Quarterly Report on Form 10-Q) contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include those preceded by, followed by or including the words "will," "expect," "intended," "anticipated," "believe," "project," "forecast," "propose," "plan," "estimate," "enable" and similar expressions, including, for example, statements about the Mergers, future events, plans and anticipated results of the operations, business strategies, the anticipated benefits of the Mergers, the anticipated impact of the Mergers on the combined Company's business and future financial operating results, the expected amount and timing of synergies from the Mergers, the anticipated closing date for the Mergers, our business strategy, our industry, our future profitability, growth in the industry sectors we serve, our expectations, beliefs, plans, strategies, objectives, prospects and assumptions, and estimates and projections of future activity and trends in the oil and natural gas industry. These forward-looking statements are not guarantees of future performance. These statements are based on management's expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, most of which are difficult to predict and many of which are beyond our control, including the factors described under "Risk Factors," that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. Such risks and uncertainties include, among other things:

	●	the risk associated with the timing of the closing of the Mergers, including the risk that the conditions to the transaction are not satisfied on a timely basis or at all or the failure of the transaction to close for any other reason or to close on the anticipated terms;
	●	the effect of the announcement, pendency or completion of the Mergers on our business relationships and business operations generally;
	●	the risk that the expected benefits and synergies of the Mergers may not be fully achieved in a timely manner, or at all;
	●	decreases in capital and other expenditure levels in the industries that we serve;
	●	U.S. and international general economic conditions;
	●	global geopolitical events;
	●	decreases in oil and natural gas prices;
	●	unexpected supply shortages;
	●	loss of third-party transportation providers;
	●	cost increases by our suppliers and transportation providers;
	●	increases in steel prices, which we may be unable to pass along to our customers which could significantly lower our profit;
	●	our lack of long-term contracts with most of our suppliers;
	●	suppliers' price reductions of products that we sell, which could cause the value of our inventory to decline;
	●	decreases in steel prices, which could significantly lower our profit;
	●	an increase in the price of goods sold if tariffs are imposed or a decline in demand for certain of the products we distribute if tariffs and duties on these products are lifted;
	●	holding more inventory than can be sold in a commercial time frame;
	●	significant substitution of renewables and low-carbon fuels for oil and gas, impacting demand for our products;
	●	risks related to adverse weather events or natural disasters;
	●	environmental, health and safety laws and regulations and the interpretation or implementation thereof;
	●	changes in our customer and product mix;
	●	the risk that manufacturers of the products we distribute will sell a substantial amount of goods directly to end users in the industry sectors we serve;
	●	failure to operate our business in an efficient or optimized manner;
	●	our ability to compete successfully with other companies in our industry;
	●	our lack of long-term contracts with many of our customers and our lack of contracts with customers that require minimum purchase volumes;

	●	inability to attract and retain our team members or the potential loss of key personnel;
	●	adverse health events, such as a pandemic;
	●	interruption in the proper functioning of our information systems, including (among other reasons) adverse impacts resulting from our implementation of a new enterprise resource planning ("ERP") system in our U.S. segment;
	●	the occurrence of cybersecurity incidents;
	●	risks related to our customers' creditworthiness;
	●	the success of our acquisition strategies;
	●	the potential adverse effects associated with integrating acquisitions into our business and whether these acquisitions will yield their intended benefits;
	●	impairment of our goodwill or other intangible assets;
	●	adverse changes in political or economic conditions in the countries in which we operate;
	●	our significant indebtedness;
	●	the dependence on our subsidiaries for cash to meet our parent company's obligations;
	●	changes in our credit profile;
	●	potential inability to obtain necessary capital;
	●	the potential share price volatility and costs incurred in response to any shareholder activism campaigns;
	●	the sufficiency of our insurance policies to cover losses, including liabilities arising from litigation;
	●	product liability claims against us;
	●	pending or future asbestos-related claims against us;
	●	exposure to U.S. and international laws and regulations, regulating corruption, limiting imports or exports or imposing economic sanctions;
	●	risks relating to ongoing evaluations of internal controls required by Section 404 of the Sarbanes-Oxley Act, a material weakness related to the operating effectiveness of our inventory cycle count control if it remains unremediated and the risk that controls embedded in our newly implemented ERP system in our U.S. segment fail in their design or operating effectiveness; and
	●	risks related to changing laws and regulations, including trade policies and tariffs.

Undue reliance should not be placed on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except to the extent law requires.

Overview

We are the leading global distributor of pipe, valves, fittings ("PVF") and other infrastructure products and services to diversified energy, industrial and gas utility sectors. We provide innovative supply chain solutions, technical product expertise and a robust digital platform to customers globally through our leading position across each of our diversified end-markets including the following sectors:

	●	Gas Utilities: (storage and distribution of natural gas)
	●	DIET: downstream, industrial and energy transition (crude oil refining, petrochemical and chemical processing, general industrials and energy transition projects)
	●	PTI: production and transmission infrastructure (exploration, production, extraction, gathering, processing and transmission of oil and gas)

We offer approximately 200,000 SKUs, including an extensive array of PVF, oilfield supply, valve automation and modification, measurement, instrumentation and other general and specialty products from our global network of over 7,100 suppliers. With over 100 years of experience, our over 2,500 employees (or "team members") serve over 8,300 customers through approximately 200 service locations including regional distribution centers, service centers, corporate offices and third-party pipe yards, where we often store and deploy pipe near customer locations.

Key Drivers of Our Business

We derive our revenue predominantly from the sale of PVF and other infrastructure supplies to gas utility, energy and industrial customers globally. Our business is dependent upon both the current conditions and future prospects in these industries and, in particular, our customers' maintenance and expansionary operating and capital expenditures. The outlook for PVF spending is influenced by numerous factors, including the following:

●

Gas Utility and Energy Infrastructure Integrity and Modernization. Ongoing maintenance and upgrading of existing energy facilities, pipelines and other infrastructure equipment is a meaningful driver for business across the sectors we serve. This is particularly true for the Gas Utilities sector. Activity with customers in this sector is driven by upgrades and replacement of existing infrastructure as well as new residential and commercial development. Continual maintenance of an aging network of pipelines and local distribution networks is a critical requirement for these customers irrespective of broader economic conditions. As a result, this business tends to be more stable over time than our traditional oilfield-dependent businesses and moves independently of commodity prices.

	●	Oil and Natural Gas Demand and Prices. Sales of PVF and infrastructure products to the oil and natural gas industry constitute a significant portion of our sales. As a result, we depend upon the maintenance and capital expenditures of oil and natural gas companies to explore for, produce and process oil, natural gas and refined products. Demand for oil and natural gas, current and projected commodity prices and the costs necessary to produce oil and gas impact customer capital spending, additions to and maintenance of pipelines, refinery utilization and petrochemical processing activity. Additionally, as these participants rebalance their capital investment away from traditional, carbon-based energy toward alternative sources, we expect to continue to supply them and enhance our product and service offerings to support their changing requirements, including in areas such as carbon capture utilization and storage, biofuels, offshore wind and hydrogen processing.
	●	Economic Conditions. Changes in the general economy or in the energy sector (domestically or internationally) can cause demand for fuels, feedstocks and petroleum-derived products to vary, thereby causing demand for the products we distribute to materially change.

	●	Manufacturer and Distributor Inventory Levels of PVF and Related Products. Manufacturer and distributor inventory levels of PVF and related products can change significantly from period to period. Increased inventory levels by manufacturers or other distributors can cause an oversupply of PVF and related products in the industry sectors we serve and reduce the prices that we are able to charge for the products we distribute. Reduced prices, in turn, would likely reduce our profitability. Conversely, decreased manufacturer inventory levels may ultimately lead to increased demand for our products and often result in increased revenue, higher PVF pricing and improved profitability.

	●	Steel Prices, Availability and Supply and Demand. Fluctuations in steel prices can lead to volatility in the pricing of the products we distribute, especially carbon steel line pipe products, which can influence the buying patterns of our customers. A majority of the products we distribute contain various types of steel. The worldwide supply and demand for these products and other steel products that we do not supply impact the pricing and availability of our products and, ultimately, our sales and operating profitability. Additionally, supply chain disruptions with key manufacturers or in markets in which we source products can impact the availability of inventory we require to support our customers. Furthermore, logistical challenges, including inflation and availability of freight providers and containers for shipping can also significantly impact our profitability and inventory lead-times. These constraints can also present an opportunity, as our supply chain expertise allows us to meet customer expectations when the competition may not.

MRC Global Sale of Canada Business

On March 14, 2025, the Company completed its sale of its Canadian operations to EMCO Corporation, and we used the proceeds to reduce debt. As a result of the executed sale agreement in December of 2024, a pre-tax, non-cash loss on discontinued operations of approximately $22 million was recorded in the fourth quarter of 2024. Upon completion of the sale in March 2025, the cumulative foreign currency translation adjustment of $28 million was released from accumulated other comprehensive income and recognized in the condensed consolidated statement of operations. The total amount was included in loss from discontinued operations, net of tax for the nine months ended September 30, 2025. The historical results of the Canada segment have been reflected as discontinued operations in our condensed consolidated financial statements for all periods prior to the definitive agreement. Assets and liabilities associated with the Canada segment are classified as assets and liabilities of discontinued operations in our condensed consolidated balance sheets as of September 30, 2025 and December 31, 2024. Additional disclosures regarding the sale of our Canada operations are provided in Note 2 of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Form 10-Q.

ERP system implementation

In August 2025, the Company commenced the implementation of its new cloud-based enterprise resource planning ("ERP") system for the U.S. segment. This ERP system replaced the Company's mainframe system, which had been in use for over 30 years and utilized older technology. During the ERP implementation, significant, unexpected challenges arose, which, while temporary in nature, adversely affected our ability to process orders, fulfill customer shipments, integrate with other necessary software systems and issue timely invoices. The issues adversely impacted revenue, profitability and cash flow in the U.S. segment for the quarter ended September 30, 2025. In an effort to resolve the adverse impacts and resulting temporary disruptions in business processes that the ERP implementation caused, management has taken comprehensive measures, including hiring employees, enhanced training and redeployed internal resources to the ERP project. At the end of September 2025, customer service levels had largely returned to normalized levels. Additionally, the elevated revenue backlog at the end of the third quarter 2025 of $571 million is expected to manifest as revenue in the coming quarters. The Company continues to expect that the ERP system will deliver long-term benefits to the Company's operations.

Recent Trends and Outlook

In January 2025, the U.S. President took office for the second time, and a new U.S. Congress was seated. The new President has executed a number of executive orders or signed certain legislation that maintain and enhance expiring tax code changes that were originally due to expire in 2025. The President and his party have also announced an aggressive policy agenda to raise tariffs on imported goods, cancel or modify trade treaties and remake relationships with other countries. It is unclear what impact these policies will have on our business. While these policies could decrease the regulatory and tax burden on our business and the businesses of our U.S. customers, increase oil and gas production in the U.S. and, as a result, increase our U.S. business activity and the sales of products from our U.S. suppliers, it is not clear that all impacts will be positive. Our customers that are oil and gas producers have generally remained disciplined in their capital expenditures and have generally not increased production beyond their ability to fund their expenditures from prudent borrowings and cash flow from operations. The President has imposed significant tariffs on steel products, which have taken effect in mid-March 2025. A significant portion of the products that we sell are made from steel. In addition, the President has announced significant tariffs on products from China and other countries where we currently source products. The majority of the products that we purchase is from U.S. suppliers, but a portion is sourced from China, including certain valve sub-assemblies that our suppliers finish in the U.S. The tariffs on products from other countries, outside of the U.S. and China, have a lesser direct impact on our business as they do not represent a significant portion of the products that we purchase from those countries for resale to our customers. The short-term impacts of tariffs on our business depends upon whether we can pass price increases to cover the tariffs to our customers. If tariffs significantly raise the price of infrastructure buildouts to our customers, our customers may delay or cancel projects, depressing demand for our products. Even so, a significant portion of our U.S. inventory and products are domestically made (especially in our gas products product line) but some products, such as valves, often have a significant portion of non-U.S. components, and we do import some valve and other products. However, given the rapidly changing tariff landscape and the government's generally supportive stance for the oil and gas industry, we are cautiously optimistic that these policies will be supportive of our business.

During the three months ended September 30, 2025, revenue decreased $120 million sequentially from the three months ended June 30, 2025, and decreased $93 million from the three months ended September 30, 2024. The decrease was primarily a combination of the temporary and unforeseen operational challenges created by the U.S. ERP system implementation that impacted all of our sectors and market activity declines in PTI and DIET sectors.

Gas Utilities

Our Gas Utilities sector makes up 40% of our total Company revenue for the first nine months of 2025, with a 2% increase in revenue compared to the nine months ended September 30, 2024. Sequentially, this sector experienced decreased revenue of 2% in the third quarter, compared to the second quarter of 2025. In 2023 and 2024, several of our key Gas Utilities customers have been focused on reducing their own product inventory levels due to more certainty in the supply chain and associated lead times. However, we believe this concern has diminished in 2025 and our customers appear to have returned to more traditional spending patterns. Although we have experienced lower sales activity in this sector in prior years, the long-term market drivers remain positive due to distribution integrity upgrade programs as well as new home construction in certain U.S. states. The majority of the work we perform with our Gas Utilities customers are multi-year programs where they continually evaluate, monitor and implement measures to improve their pipeline distribution networks, ensuring the safety and the integrity of their system. As of 2024, which is the most recently available information, the Pipeline and Hazardous Materials Safety Administration ("PHMSA") estimates approximately 34% of the gas distribution main and service line miles are over 40 years old or of unknown origin. This infrastructure requires continuous replacement and maintenance as these gas distribution networks continue to age. We supply many of the replacement products including valves, line pipe, smart meters, risers and other gas products. A large percentage of the line pipe we sell is sold to our gas utilities customers for line replacement and new sections of their distribution network. As our gas utility customers connect new homes and businesses to their gas distribution network, this creates new revenue opportunities for our business to supply the related infrastructure products. Some of our customers in this sector support both gas and electric distribution, and certain customers have announced allocating a higher proportion of their capital budget to electric distribution. Given market fundamentals, increased natural gas demand for new power plants and business development opportunities, the Gas Utilities sector is expected to grow steadily in the coming years. Additionally, this sector is less volatile than others because it relies less on energy demand and commodity prices.

Downstream, Industrial and Energy Transition (DIET)

DIET generated 29% of our total Company revenue for the first nine months of 2025 and decreased 16% compared to the nine months ended September 30, 2024. This sector has a significant amount of project activity, which can create substantial variability between quarters. Also, due to the recent tariff announcements in the U.S., some of our customers have delayed or canceled projects as a result of higher steel prices that are impacting the economics of their investments. This combined with the temporary operational challenges created by the U.S. ERP system implementation caused the decline in revenue. We continue to expect this sector to deliver growth in the coming years driven by increased customer activity levels related to new energy transition-related projects, maintenance, repair and operations ("MRO") activities and project turnaround activity in refineries and chemical plants. Additionally, we have expanded into new markets, including mining and data centers. To support this growth, we established a new service center in Arizona in 2024, strategically positioned to accelerate our entry into the western U.S. mining sector. We are also negotiating master service agreements with targeted owners and subcontractors for PVF work in new data center cooling systems. While still early, we are seeing encouraging momentum in both areas.

The energy transition portion of our business is a small portion of our DIET business today, but it is expected to have meaningful growth in the coming years. The outlook for energy transition projects is supported by government incentives and policies. Many of our customers have made commitments to net zero emissions to address climate change. Our customer base represents many of the primary leaders in the energy transition movement, and they are positioned to lead the effort to decarbonize through nearer-term efforts such as renewable or biodiesel refineries and offshore wind power generation as well as longer-term efforts such as carbon capture and storage and hydrogen. However, as U.S. government support is waning for these projects even while European government support continues, we are monitoring our customers plans for and the pace of development of these projects.

Production and Transmission Infrastructure (PTI)

The PTI sector of our business, which consists of the traditional upstream and midstream oil and gas markets, is the most cyclical, and in the first nine months of 2025 this sector represented 31% of our Company revenues with a 8% decrease compared to the nine months ended September 30, 2024. During the first nine months of 2025, Brent crude oil prices averaged approximately $71 per barrel and West Texas Intermediate ("WTI") oil prices averaged approximately $67 per barrel. Oil prices and natural gas prices drive customer activity, and both prices have experienced recent volatility. OPEC+ recently announced increased production plans, leading to a decrease in prices and adversely affecting our U.S. PTI sector. The challenges encountered from the U.S. ERP system implementation also contributed to the decline in revenue.

Recent industry reports have signaled potential risk in oil prices and projected lower customer spending levels in the near-term, due to current supply and demand projections. However, larger public exploration and production companies are expected to drive a higher percentage of the activity in the coming years, which is positive for our Company as our revenue for these sectors is driven primarily from this customer base. We also expect our larger public customers will remain disciplined and consistent with their commitments to their budgets, maintaining returns to their shareholders and operating within their cash flow requirements. Additionally, we believe the recent announcements by several of our large customers related to acquisitions of their smaller peers has potential for us in the coming years due to our current relationships with the acquiring companies.

Our major midstream customers have announced significant investment growth in natural gas infrastructure projects, aided by what is expected to be a more favorable and streamlined regulatory approval process under the current administration. The increase in LNG project approvals creates additional opportunities for gas gathering, processing and transmission, as well as participation in the LNG conversion process. We believe that natural gas will be a primary fuel for electrification to support re-shored manufacturing, transportation mobility and artificial intelligence applications.

Supply Chain and Labor

Inflation for the majority of our products eased during 2024. However, in 2025, the U.S. has imposed wide-spread tariffs on our products causing the prices for products to increase. We are able to react quickly to these price increases by actively seeking ways to pass these increases on to our customers. To the extent further pricing fluctuations impact our products, the effect on our revenue and cost of goods sold, which for the U.S. is determined using the last-in first-out ("LIFO") inventory costing methodology, remains subject to uncertainty and volatility. However, our supply chain expertise, relationships with our key suppliers and inventory position has allowed us to manage the supply chain for both inflationary and deflationary pressures. In addition, our contracts with customers generally allow us to pass price increases on to customers within a reasonable time after they occur.

There has been little impact to our supply chain directly from the conflicts in Ukraine or the Middle East. However, geopolitical conflicts could have the potential to further constrain the global supply chain and impact the availability of component parts, particularly valves and meters.

Although conditions are improving, we continue to be affected by labor constraints. Labor market dynamics vary by region and role type-while we have seen some easing in certain areas, competition remains in others. We closely monitor these trends and, through our efficient sourcing practices, have maintained customer support.

Backlog

We determine backlog by the amount of unshipped customer orders, which the customer may revise or cancel in certain instances. The table below details our backlog by segment (in millions):

		September 30,				December 31,				September 30,
		2025				2024				2024
U.S.		$	348			$	304			$	288
International			223				254				261
		$	571			$	558			$	549

There can be no assurance that the backlog amounts will ultimately be realized as revenue or that we will earn a profit on the backlog of orders, but we expect that substantially all of the sales in our backlog will be realized within twelve months.

Results of Operations

Three Months Ended September 30, 2025 Compared to the Three Months Ended September 30, 2024

The breakdown of our sales by sector for the three months ended September 30, 2025 and 2024 was as follows (in millions):

		Three Months Ended
		September 30, 2025								September 30, 2024
Gas Utilities		$	292				43	%		$	293				38	%
DIET			199				29	%			239				31	%
PTI			187				28	%			239				31	%
		$	678				100	%		$	771				100	%

For the three months ended September 30, 2025 and 2024, the following table summarizes our results of operations (in millions):

		Three Months Ended
		September 30,				September 30,
		2025				2024				$ Change				% Change
Sales:
U.S.		$	550			$	644			$	(94	)			(15	)%
International			128				127				1				1	%
Consolidated		$	678			$	771			$	(93	)			(12	)%
Operating (loss) income:
U.S.		$	(14	)		$	30			$	(44	)			N/M
International			11				9				2				22	%
Corporate and other (1)			-				(2	)			2				N/M
Consolidated		$	(3	)		$	37			$	(40	)			N/M
Interest expense		$	(10	)		$	(4	)		$	(6	)			N/M
Other, net			-				(1	)			1				N/M
(Loss) income from continuing operations before income taxes			(13	)			32				(45	)			N/M
Income tax benefit (expense)			4				(3	)			7				N/M
Net (loss) income from continuing operations			(9	)			29				(38	)			N/M
Loss from discontinued operations, net of tax			-				-				-				N/M
Net (loss) income			(9	)			29				(38	)			N/M
Series A preferred stock dividends			-				6				(6	)			N/M
Net (loss) income attributable to common stockholders		$	(9	)		$	23			$	(32	)			N/M
Gross profit		$	125			$	157			$	(32	)			(20	)%
Adjusted Gross Profit (2)		$	148			$	162			$	(14	)			(9	)%
Adjusted EBITDA (2)		$	36			$	47			$	(11	)			(23	)%

_____________________

(1)

The balances included in corporate and other represent the operating activity previously identified in our Canada segment that do not meet the criteria for discontinued operations. Additional disclosures regarding the sale of certain assets and assumed liabilities within our Canada operations are provided in Note 2 of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Form 10-Q.

(2)

Adjusted Gross Profit and Adjusted EBITDA are non-GAAP financial measures. For a reconciliation of these measures to an equivalent GAAP measure, see pages 27-29 herein.

Sales. Our sales were $678 million for the three months ended September 30, 2025, as compared to $771 million for the three months ended September 30, 2024, a decrease of $93 million. This decrease is due to a decline in the PTI sector of $52 million followed by a decrease of $40 million in the DIET sector and a reduction in the Gas Utilities sector of $1 million.

U.S. Segment-Our U.S. sales decreased to $550 million for the three months ended September 30, 2025, from $644 million for the three months ended September 30, 2024. This $94 million, or 15%, decrease is primarily due to the unexpected operational challenges created by the ERP system implementation, which impacted all of our U.S. sectors. The decrease by sector is as follows:

	●	a decrease in PTI sector sales of $54 million also due, in part, to lower commodity prices and activity slowdown;
	●	a decrease in DIET sector sales of $39 million, which has experienced an increase in tariffs and softness in the refining and chemicals market resulting in project cancellations and delays; and
	●	a decrease in Gas Utilities sector sales of $1 million.

International Segment-Our International sales increased to $128 million for the three months ended September 30, 2025, from $127 million for the same period in 2024. This International sales increase of $1 million was primarily driven by the increase in PTI sector sales of $2 million, offset by a decrease in DIET sector sales of $1 million. In addition, the strengthening of foreign currencies in areas where we operate relative to the U.S. dollar favorably impacted sales by $5 million, or 4%.

Gross Profit. Our gross profit was $125 million (18.4% of sales) for the three months ended September 30, 2025, as compared to $157 million (20.4% of sales) for the three months ended September 30, 2024. This decrease of $32 million was primarily due to the decrease in sales. As compared to average cost, our LIFO inventory costing methodology increased cost of sales by $13 million for the third quarter of 2025 compared to a $6 million decrease in cost of sales in the three months ended September 30, 2024.

Adjusted Gross Profit. Adjusted Gross Profit decreased to $148 million (21.8% of sales) for the three months ended September 30, 2025, from $162 million (21.0% of sales) for the three months ended September 30, 2024, a decrease of $14 million due to lower sales. Adjusted Gross Profit is a non-GAAP financial measure. We define Adjusted Gross Profit as sales, less cost of sales, plus depreciation and amortization, plus amortization of intangibles, plus inventory-related charges incremental to normal operations, plus transaction costs associated with acquisitions and plus or minus the impact of our LIFO inventory costing methodology. We present Adjusted Gross Profit because we believe it is a useful indicator of our operating performance without regard to items, such as amortization of intangibles that can vary substantially from company to company depending upon the nature and extent of acquisitions. Similarly, the impact of the LIFO inventory costing method can cause results to vary substantially from company to company depending upon which costing method they may elect. We use Adjusted Gross Profit as a key performance indicator in managing our business. We believe that gross profit is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly comparable to Adjusted Gross Profit.

The following table reconciles Adjusted Gross Profit, a non-GAAP financial measure, with gross profit, as derived from our financial statements (in millions):

		Three Months Ended
		September 30,				Percentage				September 30,				Percentage
		2025				of Revenue				2024				of Revenue
Gross profit, as reported		$	125				18.4	%		$	157				20.4	%
Depreciation and amortization			6				0.9	%			6				0.8	%
Amortization of intangibles			4				0.6	%			5				0.6	%
Increase (decrease) in LIFO reserve			13				1.9	%			(6	)			(0.8	)%
Adjusted Gross Profit		$	148				21.8	%		$	162				21.0	%

Selling, General and Administrative ("SG&A") Expenses. Our SG&A expenses were $128 million (18.9% of sales) for the three months ended September 30, 2025, as compared to $120 million (15.6% of sales) for the three months ended September 30, 2024. The $8 million increase in SG&A was primarily driven by a $6 million increase in legal and professional fees associated with the Mergers and $6 million increase in non-capitalized expenses associated with our U.S. ERP system implementation. These increases were partially offset by a decrease in personnel expenses.

Operating (Loss) Income. Operating loss was $3 million for the three months ended September 30, 2025, as compared to operating income of $37 million for the three months ended September 30, 2024, a decrease of $40 million, primarily due to lower sales caused by operating challenges from our ERP system implementation.

U.S. Segment-Operating loss for our U.S. segment was $14 million for the three months ended September 30, 2025, compared to operating income of $30 million for the three months ended September 30, 2024, a $44 million decrease. The $44 million decrease was primarily attributable to lower sales caused by operating challenges from our ERP system implementation, a $6 million increase in SG&A expense due to legal and professional fees associated with the Mergers and $6 million increase in non-capitalizable expenses associated with our ERP system implementation.

International Segment-Operating income for our International segment was $11 million for the three months ended September 30, 2025, as compared to operating income of $9 million for the three months ended September 30, 2024, primarily due to increased sales and margins.

Corporate and other-We did not have any operating activity for the three months ended September 30, 2025, as compared to an operating loss of $2 million for the three months ended September 30, 2024, primarily attributable to lower corporate overhead allocation expenses as a result of the close of the sale of the Canada business in March 2025.

Interest Expense. Our interest expense was $10 million and $4 million expense for the three months ended September 30, 2025 and 2024, respectively. The increase of $6 million was primarily due to higher average debt balances as well as higher average interest rates. The Company entered into a new $350 million senior secured term loan in October 2024 with higher benchmark interest rates as compared to the prior senior secured term loan that was repaid in May 2024.

Other, net. Other, net was less than $1 million expense for the three months ended September 30, 2025 compared to $1 million expense for the three months ended September 30, 2024, which consisted primarily of foreign exchange losses.

Income Tax Expense. Our income tax benefit was $4 million for the three months ended September 30, 2025, as compared to $3 million expense for the three months ended September 30, 2024. The decrease in expense is primarily due to decreased profitability. Our effective tax rates were 31% and 9% for the three months ended September 30, 2025 and 2024, respectively. Our rates differ from the U.S. federal statutory rate of 21% as a result of state income taxes, non-deductible expenses and differing foreign income tax rates. In addition, the effective tax rate for the three months ended September 30, 2025 increased due to a loss before tax and the impact of discrete tax benefits.

Pillar Two. The Organization for Economic Co-operation and Development has enacted model rules for a new global minimum tax framework, also known as Pillar Two and continues to release additional guidance on how Pillar Two rules should be interpreted and applied by jurisdictions as they adopt Pillar Two. A number of countries have utilized the administrative guidance as a starting point for legislation that went into effect January 1, 2024. These rules did not have a material impact on our taxes for the three months ended September 30, 2025.

Net (Loss) Income from Continuing Operations. Our net loss from continuing operations was $9 million for the three months ended September 30, 2025, as compared to net income from continuing operations of $29 million for the three months ended September 30, 2024, a decrease of $38 million due to lower sales and higher SG&A expenses.

(Loss) from Discontinued Operations, net of tax. Our net loss from discontinued operations, net of tax, was less than $1 million for the three months ended September 30, 2025, as compared to a net loss of less than $1 million for the three months ended September 30, 2024. Additional disclosures regarding the sale of certain assets and liabilities within our Canada operations are provided in Note 2 of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Form 10-Q.

Adjusted EBITDA. Adjusted EBITDA, a non-GAAP financial measure, was $36 million (5.3% of sales) for the three months ended September 30, 2025, as compared to $47 million (6.1% of sales) for the three months ended September 30, 2024.

We define Adjusted EBITDA as net income plus interest, income taxes, depreciation and amortization, amortization of intangibles and certain other expenses, including non-cash expenses such as equity-based compensation, severance and restructuring, changes in the fair value of derivative instruments, long-lived asset impairments (including goodwill and intangible assets), inventory-related charges incremental to normal operations, charges related to our internal control remediation, the Mergers and non-capitalizable expenses related to the U.S. ERP system implementation and plus or minus the impact of our LIFO inventory costing methodology.

We believe Adjusted EBITDA provides investors with a helpful measure for comparing our operating performance with the performance of other companies that may have different financing and capital structures or tax rates. We believe it is a useful indicator of our operating performance without regard to items, such as amortization of intangibles, which can vary substantially from company to company depending upon the nature and extent of acquisitions. Similarly, the impact of the LIFO inventory costing method can cause results to vary substantially from company to company depending upon which costing method they may elect. We use Adjusted EBITDA as a key performance indicator in managing our business. We believe that net income is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly comparable to Adjusted EBITDA.

The following table reconciles Adjusted EBITDA, a non-GAAP financial measure, with net income, as derived from our financial statements (in millions):

		Three Months Ended
		September 30,				September 30,
		2025				2024
Net (loss) income		$	(9	)		$	29
Loss from discontinued operations, net of tax			-				-
Net (loss) income from continuing operations			(9	)			29
Income tax (benefit) expense			(4	)			3
Interest expense			10				4
Depreciation and amortization			6				6
Amortization of intangibles			4				5
Increase (decrease) in LIFO reserve			13				(6	)
Equity-based compensation expense			4				4
ERP system implementation			6				-
Non-recurring other legal and consulting costs (1)			6				-
Foreign currency losses			-				2
Adjusted EBITDA		$	36			$	47

____________

(1)

For the three months ended September 30, 2025, non-recurring other legal and consulting costs includes expenses of $6 million associated with the pending Mergers. Additional disclosures regarding the Mergers are provided in Note 1 of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Form 10-Q.

Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024

The breakdown of our sales by sector for the nine months ended September 30, 2025 and 2024 was as follows (in millions):

		Nine Months Ended
		September 30, 2025								September 30, 2024
Gas Utilities		$	864				40	%		$	845				36	%
DIET			642				29	%			762				32	%
PTI			682				31	%			740				32	%
		$	2,188				100	%		$	2,347				100	%

For the nine months ended September 30, 2025 and 2024, the following table summarizes our results of operations (in millions):

		Nine Months Ended
		September 30,				September 30,
		2025				2024				$ Change				% Change
Sales:
U.S.		$	1,799			$	1,988			$	(189	)			(10	)%
International			389				359				30				8	%
Consolidated		$	2,188			$	2,347			$	(159	)			(7	)%
Operating income (loss):
U.S.		$	2			$	102			$	(100	)			(98	)%
International			34				25				9				36	%
Corporate and other (1)			-				(4	)			4			N/M
Consolidated		$	36			$	123			$	(87	)			(71	)%
Interest expense		$	(29	)			(19	)			(10	)			53	%
Other, net			7				(2	)			9			N/M
Income from continuing operations before income taxes			14				102				(88	)			(86	)%
Income tax expense			(2	)			(23	)			21				(91	)%
Net income from continuing operations			12				79				(67	)			(85	)%
Loss from discontinued operations, net of tax			(30	)			(1	)			(29	)		N/M
Net (loss) income			(18	)			78				(96	)		N/M
Series A preferred stock dividends			-				18				(18	)		N/M
Net (loss) income attributable to common stockholders		$	(18	)		$	60			$	(78	)		N/M
Gross profit		$	418			$	485			$	(67	)			(14	)%
Adjusted Gross Profit (2)		$	473			$	512			$	(39	)			(8	)%
Adjusted EBITDA (2)		$	126			$	169			$	(43	)			(25	)%

_____________________

(1)

The balances included in corporate and other represent the operating activity previously identified in our Canada segment that do not meet the criteria for discontinued operations. Additional disclosures regarding the sale of certain assets and assumed liabilities within our Canada operations are provided in Note 2 of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Form 10-Q.

(2)

Adjusted Gross Profit and Adjusted EBITDA are non-GAAP financial measures. For a reconciliation of these measures to an equivalent GAAP measure, see pages 31-33 herein.

Sales. Our sales were $2,188 million for the nine months ended September 30, 2025, as compared to $2,347 million for the nine months ended September 30, 2024, a decrease of $159 million, or 7%. This decrease is due to a decrease in the DIET sector and decrease in PTI sector of $120 million and $58 million, respectively, offset by an increase in the Gas Utilities sector of $19 million.

U.S. Segment-Our U.S. sales decreased to $1,799 million for the nine months ended September 30, 2025, from $1,988 million for the nine months ended September 30, 2024. This $189 million, or 10%, decrease is primarily due to the unexpected operational challenges created by the ERP system implementation, which impacted all of our U.S. sectors. The decrease by sector is as follows:

	●	a decrease in PTI sector sales of $103 million also due, in part, to lower commodity prices and activity slowdown;
	●	a decrease in DIET sector sales of $105 million, which has experienced an increase in tariffs and softness in the refining and chemicals market resulting in project cancellations and delays; and
	●	an increase in Gas Utilities sector sales of $19 million.

International Segment-Our International sales increased to $389 million for the nine months ended September 30, 2025, from $359 million for the same period in 2024. This International sales increase of $30 million was primarily driven by an increase in PTI sector sales of $45 million, offset by a decrease in DIET sector sales of $15 million. In addition, the strengthening of foreign currencies in areas where we operate relative to the U.S. dollar favorably impacted sales by $6 million.

Gross Profit. Our gross profit was $418 million (19.1% of sales) for the nine months ended September 30, 2025, as compared to $485 million (20.7% of sales) for the nine months ended September 30, 2024. This decrease of $67 million was primarily due to the decrease in sales. As compared to average cost, our LIFO inventory costing methodology increased cost of sales by $24 million for the nine months ended September 30, 2025 compared to a $4 million decrease in cost of sales in the nine months ended September 30, 2024.

Adjusted Gross Profit. Adjusted Gross Profit declined to $473 million (21.6% of sales) for the nine months ended September 30, 2025, from $512 million (21.8% of sales) for the nine months ended September 30, 2024, a decrease of $39 million due to lower sales. Adjusted Gross Profit is a non-GAAP financial measure. We define Adjusted Gross Profit as sales, less cost of sales, plus depreciation and amortization, plus amortization of intangibles, plus inventory-related charges incremental to normal operations, plus transaction costs associated with acquisitions and plus or minus the impact of our LIFO inventory costing methodology. We present Adjusted Gross Profit because we believe it is a useful indicator of our operating performance without regard to items, such as amortization of intangibles that can vary substantially from company to company depending upon the nature and extent of acquisitions. Similarly, the impact of the LIFO inventory costing method can cause results to vary substantially from company to company depending upon which costing method they may elect. We use Adjusted Gross Profit as a key performance indicator in managing our business. We believe that gross profit is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly comparable to Adjusted Gross Profit.

The following table reconciles Adjusted Gross Profit, a non-GAAP financial measure, with gross profit, as derived from our financial statements (in millions):

		Nine Months Ended
		September 30,				Percentage				September 30,				Percentage
		2025				of Revenue				2024				of Revenue
Gross profit, as reported		$	418				19.1	%		$	485				20.7	%
Depreciation and amortization			18				0.8	%			16				0.7	%
Amortization of intangibles			13				0.6	%			15				0.6	%
Increase (decrease) in LIFO reserve			24				1.1	%			(4	)			(0.2	)%
Adjusted Gross Profit		$	473				21.6	%		$	512				21.8	%

SG&A Expenses. Our SG&A expenses were $382 million (17.5% of sales) for the nine months ended September 30, 2025, as compared to $362 million (15.4% of sales) for the nine months ended September 30, 2024. The $20 million increase in SG&A was primarily drivenby a $13 million increase in legal and professional fees associated with the Mergers and a $6 million increase in non-capitalizable expenses associated with our U.S. ERP system implementation.

Operating Income (Loss). Operating income was $36 million for the ninemonths ended September 30, 2025, as compared to operating income of $123 million for the ninemonths ended September 30, 2024, a decrease of $87 million, primarily due to lower sales.

U.S. Segment-Operating income for our U.S. segment was $2 million for the ninemonths ended September 30, 2025, compared to operating income of $102 million for the ninemonths ended September 30, 2024, a $100 million decrease. The $100 million decrease was primarily attributable to lower sales caused by operating challenges from our ERP system implementation, a $13 million increase in SG&A expense due to legal and professional fees associated with the Mergers and $6 million increase in non-capitalizable expenses associated with our ERP system implementation.

International Segment-Operating income for our International segment was $34 million for the nine months ended September 30, 2025, as compared to operating income of $25 million for the nine months ended September 30, 2024. The $9 million increase was primarily due to increased sales.

Corporate and other-We did not have any operating activity for the nine months ended September 30, 2025 as compared to an operating loss of $4 million for the nine months ended September 30, 2024, primarily attributable to lower corporate overhead allocation expenses as a result of the close of the sale of the Canada business in March 2025.

Interest Expense. Our interest expense was $29 million and $19 million expense for the nine months ended September 30, 2025 and 2024, respectively. The increase of $10 million was primarily due higher average debt balances as well as higher average interest rates. The Company entered into a new $350 million senior secured term loan in October 2024 with higher benchmark interest rates as compared to the prior senior secured term loan that was repaid in May 2024.

Other, net. Other, net was $7 millionincome for the nine months ended September 30, 2025, as compared to $2 million expense for the nine months ended September 30, 2024, which consisted primarily of income of $3 million for an asset disposal in our International segment, $2 million foreign exchange gains and income of $1 million recognized as part of transition services provided to EMCO as part of the sale of the Canada business.

Income Tax Expense. Our income tax expense was $2 million for the nine months ended September 30, 2025, as compared to $23 million expense for the nine months ended September 30, 2024. The decrease in expense is primarily due to decreased profitability, reduction in unbenefited foreign losses and a tax windfall on stock vestings. Our effective tax rates were 14% and 23% for the nine months ended September 30, 2025 and 2024, respectively. Our rates differ from the U.S. federal statutory rate of 21% as a result of state income taxes, non-deductible expenses and differing foreign income tax rates. In addition, the effective tax rate for the nine months ended September 30, 2025 was favorably impacted by unamortized research and development costs, vesting of stock awards and lower income before tax.

Pillar Two. The Organization for Economic Co-operation and Development has enacted model rules for a new global minimum tax framework, also known as Pillar Two and continues to release additional guidance on how Pillar Two rules should be interpreted and applied by jurisdictions as they adopt Pillar Two. A number of countries have utilized the administrative guidance as a starting point for legislation that went into effect January 1, 2024. These rules did not have a material impact on our taxes for the ninemonths ended September 30, 2025.

Net Income from Continuing Operations. Our net income from continuing operations was $12 million for the nine months ended September 30, 2025, as compared to net income from continuing operations of $79 million for the nine months ended September 30, 2024, a decrease of $67 million due to lower sales.

(Loss) from Discontinued Operations, net of tax. Our net loss from discontinued operations, net of tax, was $30 million for the nine months ended September 30, 2025, as compared to a net loss of $1 million for the nine months ended September 30, 2024. The decrease of $29 million was primarily attributable to the loss recorded related to the reclassification of foreign currency translation adjustments to net income and decreased revenues as a result of the sale of the Canada business in March 2025. Additional disclosures regarding the sale of certain assets and liabilities within our Canada operations are provided in Note 2 of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Form 10-Q.

Adjusted EBITDA. Adjusted EBITDA, a non-GAAP financial measure, was $126 million (5.8% of sales) for the nine months ended September 30, 2025, as compared to $169 million (7.2% of sales) for the nine months ended September 30, 2024.

We define Adjusted EBITDA as net income plus interest, income taxes, depreciation and amortization, amortization of intangibles and certain other expenses, including non-cash expenses such as equity-based compensation, severance and restructuring, changes in the fair value of derivative instruments, long-lived asset impairments (including goodwill and intangible assets), inventory-related charges incremental to normal operations, charges related to our internal control remediation, the Mergers and non-capitalizable expenses related to the U.S. ERP system implementation and plus or minus the impact of our LIFO inventory costing methodology.

We believe Adjusted EBITDA provides investors with a helpful measure for comparing our operating performance with the performance of other companies that may have different financing and capital structures or tax rates. We believe it is a useful indicator of our operating performance without regard to items, such as amortization of intangibles, which can vary substantially from company to company depending upon the nature and extent of acquisitions. Similarly, the impact of the LIFO inventory costing method can cause results to vary substantially from company to company depending upon which costing method they may elect. We use Adjusted EBITDA as a key performance indicator in managing our business. We believe that net income is the financial measure calculated and presented in accordance with U.S. generally accepted accounting principles that is most directly comparable to Adjusted EBITDA.

The following table reconciles Adjusted EBITDA, a non-GAAP financial measure, with net income, as derived from our financial statements (in millions):

		Nine Months Ended
		September 30,				September 30,
		2025				2024
Net (loss) income		$	(18	)		$	78
Loss from discontinued operations, net of tax			30				1
Net income from continuing operations			12				79
Income tax expense			2				23
Interest expense			29				19
Depreciation and amortization			18				16
Amortization of intangibles			13				15
Facility closures			-				1
Increase (decrease) in LIFO reserve			24				(4	)
Equity-based compensation expense			12				11
Internal control remediation			2				-
ERP system implementation			6				-
Non-recurring other legal and consulting costs (1)			13				-
Activism response legal and consulting costs			-				4
Write off of debt issuance costs			-				1
Asset disposal			(3	)			1
Foreign currency (gains) losses			(2	)			3
Adjusted EBITDA		$	126			$	169

____________

(1)

For the nine months ended September 30, 2025, non-recurring other legal and consulting costs includes expenses of $13 million associated with the pending Mergers. Additional disclosures regarding the Mergers are provided in Note 1 of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Form 10-Q.

Liquidity and Capital Resources

Our primary credit facilities as of September 30, 2025 consist of a $750 million global asset-based lending facility (the "Global ABL Facility") and a Senior Secured Term Loan "B" (the "Term Loan") maturing in October 2031 with an original principal amount of $350 million.

Our Global ABL Facility matures in November 2029. The Global ABL Facility is comprised of $705 million in revolver commitments in the United States, which includes a $30 million sub-limit for Canada, $12 million in Norway, $10 million in Australia, $10.5 million in the Netherlands, $7.5 million in the United Kingdom and $5 million in Belgium. The Global ABL Facility contains an accordion feature that allows us to increase the principal amount of the facility by up to $250 million, subject to securing additional lender commitments. Under the Global ABL Facility, U.S. borrowings bear interest at Term SOFR plus a margin varying between 1.25% and 1.75% based on our fixed charge coverage ratio. Canadian borrowings under the facility bear interest at the Canadian Dollar Bankers' Acceptances Rate ("BA Rate") plus a margin varying between 1.25% and 1.75% based on our fixed charge coverage ratio. Borrowings under our foreign borrower subsidiaries bear interest at a benchmark rate, which varies based on the currency in which such borrowings are made, plus a margin varying between 1.25% and 1.75% based on our fixed charge coverage ratio. Availability is dependent on a borrowing base comprised of a percentage of eligible accounts receivable and inventory which is subject to redetermination from time to time. As of September 30, 2025, we had $134 million in borrowings and $477 million of Excess Availability, as defined under our Global ABL Facility. Upon closing of the Mergers, the combined company must pay the Global ABL Facility in full, discharge and terminate it or amend the Global ABL Facility to avoid an event of default precipitated by the change in control of the Company. DNOW has obtained a debt commitment letter and has represented that it will have sufficient liquidity to pay off and discharge the Global ABL Facility at closing out of available funds, other sources and from the debt financing that the debt commitment letter outlines.

As of September 30, 2025, the outstanding balance on our Term Loan, net of original issue discount and issuance costs, was $342 million. We are required to repay the Term Loan with the proceeds from certain asset sales and certain insurance proceeds. In addition, on an annual basis, we are required to repay an amount equal to 50% of excess cash flow, as defined in the Term Loan, reducing to 25% if our first lien leverage ratio is no more than 3.25 to 1.00 but greater than 3.00 to 1.00. The Term Loan accrues interest at a margin plus either Term SOFR or a base rate, depending on the Company's election at the time of a loan. For loans incurring interest based on Term SOFR, the margin is (a) 350 basis points if either or both of the ratings (i) by Moody's Investors Service, Inc. ("Moody's") is B2, or lower, or (ii) by Standard & Poor's Ratings Services ("S&P") is B, or lower, and (b) 325 basis points if either or both of the ratings (i) by Moody's is B1, or better, or (ii) by S&P is B+, or better. For loans incurring interest based on the base rate, the margin is (a) 250 basis points if either or both of the ratings (i) by Moody's is B2, or lower, or (ii) by S&P is B, or lower, and (b) 225 basis points if either or both of the ratings (i) by Moody's is B1, or better, or (ii) by S&P is B+, or better. The Term Loan provides certain provisions if ratings are unavailable. Pursuant to the Merger Agreement, the Company will deliver, at the option of DNOW, a payoff letter with respect to the Term Loan for payment in full of the Term Loan at the closing of the Mergers, or an amendment, or a consent from the requisite holders, of the Term Loan, permitting the transactions contemplated by the Merger Agreement.

Our primary sources of liquidity consist of cash generated from our operating activities, existing cash balances and borrowings under our Global ABL Facility. Our ability to generate sufficient cash flows from our operating activities will continue to be primarily dependent on our sales of products and services to our customers at margins sufficient to cover our fixed and variable expenses. Significant challenges arose during the implementation of our U.S. ERP system, which is temporarily impacting our operating cash flow, resulting in increased borrowings, which we expect to normalize in 2026. At September 30, 2025, our total liquidity, consisting of cash on hand and amounts available under our Global ABL Facility, was $536 million. As of September 30, 2025 and December 31, 2024, we had cash of $59 million and $63 million, a significant portion of which was maintained in the accounts of our various foreign subsidiaries and, if transferred among countries or repatriated to the U.S., may be subject to additional tax liabilities, which would be recognized in our financial statements in the period during which the transfer decision was made.

Our credit ratings are below "investment grade" and, as such, could impact both our ability to raise new funds as well as the interest rates on our future borrowings. In October 2024, Moody's upgraded the Company's corporate family rating to 'B1' from 'B2' with a stable outlook. Moody's based its ratings upgrade, in part, on the Company's moderate leverage and ample interest coverage, modest capital spending requirements and solid operating performance. Moody's affirmed the outlook as 'stable' based on their view that the Company's performance will remain strong and continue to generate positive free cash flow, and the Company's credit metrics will remain robust. In addition, S&P affirmed the Company's issuer-credit rating of 'B' with a 'stable' outlook. In April 2025, S&P affirmed the Company's issuer-credit rating of 'B' with a revised outlook of 'positive'. In June 2025, as a result of the announcement of the DNOW merger agreement, S&P affirmed the Company's issuer-credit rating of 'B' with 'CreditWatch Positive' rating, with positive implications pending regulatory approval of the transaction. Our existing obligations restrict our ability to incur additional debt under certain circumstances. We were in compliance with covenants contained in our various credit facilities as of and during the nine months ended September 30, 2025, and based on our current forecasts, we expect to remain in compliance.

We believe our sources of liquidity will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for the foreseeable future. However, our future cash requirements could be higher than we currently expect as a result of various factors. Additionally, our ability to generate sufficient cash from our operating activities depends on our future performance, which is subject to general economic, political, financial, competitive and other factors beyond our control. We may, from time to time, seek to raise additional debt or equity financing or re-price or refinance existing debt in the public or private markets, based on market conditions. Any such capital markets activities would be subject to market conditions, reaching final agreement with lenders or investors, and other factors, and there can be no assurance that we would successfully consummate any such transactions.

Cash Flows

The following table sets forth our cash flows for the periods indicated below (in millions):

		Nine Months Ended
		September 30,				September 30,
		2025				2024
Net cash (used in) provided by:
Operating cash flows from continuing operations		$	(61	)		$	195
Operating cash flows from discontinued operations			(6	)			2
Operating activities			(67	)			197
Investing cash flows from continuing operations			(25	)			(22	)
Investing cash flows from discontinued operations			18				-
Investing activities			(7	)			(22	)
Financing cash flows from continuing operations			65				(242	)
Financing cash flows from discontinued operations			-				-
Financing activities			65				(242	)
Net decrease in cash and cash equivalents		$	(9	)		$	(67	)

Operating Activities

Net cash used in operating activities from continuing operations was $61 million during the nine months ended September 30, 2025, as compared to $195 million provided by operating activities from continuing operations during the nine months ended September 30, 2024. Net cash used in operating activities from discontinued operations was $6 million during the nine months ended September 30, 2025 compared to $2 million provided by operating activities from discontinued operations during the nine months ended September 30, 2024. Net cash used in operating activities was $67 million during the nine months ended September 30, 2025, compared to $197 million generated during the nine months ended September 30, 2024. The change in operating cash flows was primarily the result of increases in inventory, and lower profitability driven by the challenges from our new U.S. ERP system going live, partially offset by an increase in payables.

Investing Activities

Net cash used in investing activities from continuing operations was $25 million during the nine months ended September 30, 2025, as compared to $22 million used in investing activities from continuing operations for the nine months ended September 30, 2024. The increase in net cash used was primarily related to the replacement of our U.S. ERP system that the Company implemented in August 2025. We experienced an increase in net cash provided by investing activities from discontinued operations of $18 million during the nine months ended September 30, 2025 as compared to less than $1 million in cash provided by investing activities for the nine months ended September 30, 2024 due to proceeds from the sale of the Canada business.

Financing Activities

Net cash provided by financing activities was $65 million for the nine months ended September 30, 2025, as compared to $242 million used in financing activities for the nine months ended September 30, 2024. The change is primarily due to less payments on debt obligations and no payment of preferred dividends for the nine months ended September 30, 2025 as compared to payment of preferred dividends for the nine months ended September 30, 2024 of $18 million. These changes were offset by repurchases of common stock of $15 million for the nine months ended September 30, 2025.

Critical Accounting Policies

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expense in the financial statements. Management bases its estimates on historical experience and other assumptions, which it believes are reasonable. If actual amounts are ultimately different from these estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.

Accounting policies are considered critical when they require management to make assumptions about matters that are highly uncertain at the time the estimates are made and when there are different estimates that management reasonably could have made, which would have a material impact on the presentation of our financial condition, changes in our financial condition or results of operations. For a description of our critical accounting policies, see "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.